Nickel
prices and the effect on Stainless Steel prices

The health of the worldwide nickel market is heavily dependent upon stainless
steel production. The pricing of stainless steel is also dependent on the
market prices of worldwide nickel. Two-thirds of all nickel mined and produced
in the world will make its way into stainless steel.

Disovered in 1751, nickel held very little value to industry until Michael
Faraday, in 1820, discovered that adding nickel, strengthened iron. Later
development would produce nickel steel in 1885, which tests sponsored by
the U.S. military, showed made superior weaponry. This use has made nickel
a critical commodity in time of warfare. Nickel and cobalt are used today
in the production of superalloys used in jet aircraft and missiles, among
mumerous other military uses.

Traditionally, warfare in the 20th century has increased demand and caused
spikes in nickel prices. During the Korean conflict, US plants could not
produce enough nickel to keep up with wartime needs. The government was forced
to take control of over all U.S. production and until 1957, it controlled
production and nickel inventory stocks in the US. The governement relinguished
control over nickel four years after the cease fire was signed only after
building a national strategic stockpile. By the beginning of US involvement
in the Vietnam conflict, Canadian producers, Inco and Falconbridge accounted
for 48% of world nickel production. Canadian labor strikes in 1969 decreased
Canadian production just as wartime needs for nickel increased. As new mines
and processing plants came online in countries such as Australia, New Caledonia,
and the Dominican Republic, Canadian producers would lose their world domination
and diminish their ability to set nickel pricing.

Prices would gradually increase over the next decade as demand for nickel
increased. Once again a labor stirke at Inco would cause a serious jump in
prices in 1978 and in 1979 nickel became the seventh metal to be traded on
the London Metal Exchange. Nickel prices would now be set by worldwide supply
and demand. After increasing in price by 33% in two years, the ending of
the Inco strike would bring about a surplus of nickel and prices would free
fall to near pre-strike levels and continue to slide until 1987. 1986 ended
with pricing as low as it had been in years selling for $1.60 per pound.
Many world producers of nickel had discontinued production and the stage
was set for the industry to be caught off guard. Stainless steel usage
in 1987 increased dramatically and demand exceeded supply. The Dominican
Republic government levied a huge duty on exported nickel, which forced
Falconbridge, who maintained the Dominican mines, to cancel shipments. By
April of 1988, nickel prices had soared to an all time high of $8.17 per
pound.

While nickel demand remained strong, producers were finally able to catch
up and nearly as quickly as prices had sky rocketed, they free falled. The
decrease in price continued when in 1991 the fall of the Soviet Union meant
a new and powerful player would add more nickel producing capacity to the
world stage. Norilsk Nickel, the world's largest producer of nickel, would
begin to export heavily as demand in the former military government crumbled.
This would further depress prices except for a slight surge in 1995 when
an explosion and fire at a power plant would temporarily cripple Norilsk's
ability to produce and ship nickel, while at the same time a major earthquake
in Japan would increase the demand in stainless for reconstruction. A depressed
Far East economy would drive prices back down as stainless demand fell.

Once again a rebound in stainless steel in 1999 would catch nickel producers
off guard. Inco sufered another shut down due to a strike and was too strapped
for cash to re-open closed mines. Canadian Falconbridge, the worlds third
largest producer suffered smelter problems and Australian producer, WMC (Western
Mining Corp), had to shut down for two months. Norilsk was unable to ship
nickel as the annual Arctic freeze lasted longer than usual. Once again,
with demand exceeding supply, prices increased until production caught up
in 2000 and prices peaked. 2001 saw prices fall but a strike at Inco once
again brought them back up in 2003.

While stainless is primarily made of chromium, nickel is less abundant and
far more volatile. Generally speaking, history has shown the pricing of stainless
closely follows the cost of nickel. This is due in part to the fact that
while nickel may make up a small percentage of stainless in mass (8% in 304),
it contributes upwards of 60% of the cost. With the United States currently
not mining any nickel or ferrochrome, and the U.S. Defense Logistical Agency
selling off its stategic stockpile of nickel in 1999, the United States is
now 100% dependent on foreign imports and scrap for these two key ingredients
of stainless steel. Stay tuned.

Update

Currently the world is operating in a nickel deficit market. With the recent
recoveries to the U.S. and European markets, in a time that nickel production
was already predicted to be in a deficit situation from China's ravenous
appetite, nickel prices have nearly doubled since this time last year. See
our Market News page for up to date info